Teaching financial basics to children

Usually when I talk to my kids about my job, or personal finances in general, their eyes glaze over and their input to the conversation is generally limited to an occasional "um-hm." I guess discussions about long-term goals, saving, investing and taxes are best left as bedtime stories or for when I really want my kids to go to their rooms so I can have some peace and quiet.

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By David T. Mayes

seacoastonline.com

By David T. Mayes

Posted Dec. 15, 2013 at 2:00 AM

By David T. Mayes
Posted Dec. 15, 2013 at 2:00 AM

» Social News

Usually when I talk to my kids about my job, or personal finances in general, their eyes glaze over and their input to the conversation is generally limited to an occasional "um-hm." I guess discussions about long-term goals, saving, investing and taxes are best left as bedtime stories or for when I really want my kids to go to their rooms so I can have some peace and quiet.

But over the past few days I have been getting a lot of questions from my 13-year-old daughter whose eighth-grade class is getting what I would call a good reality check on what life might look like after they start their careers. As an introduction to personal finance, she and her classmates were asked to think about what their lives would look like at age 30. They had to decide on a career, whether they would be married, how many children they would have and where they would live. These choices were all made before the students found out how much their salaries would be, based on average pay for their chosen careers. In effect, they were asked to make important life decisions without a full understanding of the financial consequences, not unlike the approach many of us take in real life.

For my daughter, this exercise has been a real eye-opener and has prompted some great questions. When she is 30, she plans to be married and working as a freelance photographer in New York City, and the mother of one child. "Dad, do you realize how much money gets taken out of my pay for taxes?" "Yes, yes I do." "Dad, can you believe how much it costs for food each month?" "I know. It's crazy isn't it?" After subtracting the government's take, and the cost of necessities like food, clothing, shelter and transportation, she has realized how little is left for all of the fun things she imagines herself doing at that age. Yesterday, she told me she might have to rethink having children. "Dad, having kids is really expensive," she tells me. I wish she had told me that 13 years ago.

As a financial planner, I am ecstatic that these financial life skills are being taught at school where the kids can get perspective from their peers. For my daughter, this interaction with classmates definitely has her more excited to learn about basic money management and decision-making. Given the general lack of financial literacy in our country, it is good to know some schools are working to give children an introduction to the choices they will be faced with later in life.

Absent a formal school curriculum in personal finance, the job of raising financially savvy kids falls largely to parents. This comes with its own set of challenges as parents may not be comfortable sharing too much detail with children about the family's finances or may not be sure how to effectively communicate about money in ways that their children will truly understand. Every parent has undoubtedly heard "why can't I have that?" from their children on multiple occasions. Being able to respond to this question in a way that not only stops the nagging but also imparts a lesson about your money values is much harder than just saying "no" every time your child asks for something.

Letting your child know your reasoning for not making a purchase can go a long way toward shaping their values about money, even if your answer is simply that you feel the item is too expensive or that, as a family, you make a point not to buy everything you want right when you want it. Kids will not like either answer, but eventually will come to appreciate that you explained why you made the choice that you did.

Using an allowance system at home can also be a very effective tool for teaching good money values to children. For early teens like my daughter, introducing the concept of an allowance as a paycheck and making them responsible for purchasing some things on their own, as well as establishing and saving for long-term goals, will help establish good fundamentals. For my younger daughter, tonight's bedtime story will be about Roth IRAs.

David T. Mayes is a Certified Financial Planner professional and IRS Enrolled Agent at Mackensen & Company, Inc., a fee-only advisory firm in Hampton. He can be reached at 926-1775, david.mayes@mackensen.com or by visiting www.mackensen.com.